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The Core Competence of the Corporation

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on 4 April 2015

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Transcript of The Core Competence of the Corporation

The Core Competence of the Corporation
Developing Strategic Architecture
Questions to consider:
- How long could we preserve our competitiveness in this business if we did not control this particular core competence?
- How central is this core competence to perceived customer benefits?
- What future opportunities would be lost if we were to lose this particular competence?

Architecture provides a path for product diversification
Specific architecture CANNOT be copied EASILY by competitors
The company leading in core competencies: generally beat competitors in new business development

The company leading to
"maximize world manufacturing share in core products,"
generally beat competitors in enhancing products and improving price/performance ratio

Controlling the dominant position of core products and increasing its number of functions can lead to economies of scale and scope
Important Lessons
Failure to recognize core competencies may lead to decisions that result in loss.

Core competencies are built through continuous improvement, once a company stops investing in its core competence building, they will find it very difficult to re-enter the market.

The Corporation as a Tree
Identifying Core Competencies
Enable access and participation to several markets

Significantly impact the apparent benefits of the end products

Difficult for rivals to reproduce
Competitive Advantage
management’s ability to consolidate corporate-wide technologies and production skills to allow individual businesses to quickly adapt to changing opportunities

price/performance attributes of current products

ability to build core competencies, at lower cost and more speedily than their competitors

SBU: Strategic Business Unit
“A SBU is an individual business that sells a distinct set of products or services to an identifiable group of customers in competition with a well-defined set of competitors.”
- Dvir and Shenhar
Concerns about SBU
Individual SBUs will pursue only those innovation opportunities that are convenient when core competencies are not recognized.
1. Underinvestment in Developing Core Competencies and Core Products:
SBU managers will tend to under invest because of the absence of a more comprehensive view. This occurs when no single business feels that they are in a position to invest in core competencies.
2. Imprisoned Resources:
Upon competency development, SBU managers are unwilling to lend their competence carriers and they may hide talent to prevent its redeployment.
3. Bounded Innovation:
SBU vs. Core Competency
Compete for today’s products and contains a
portfolio of businesses
where such discrete businesses are the units of analysis.
Core Competency:
Compete for competencies and contain a
portfolio of competencies
where such competencies and businesses are the units of analysis. SBUs are potential sources of core competencies.
SBU managers often outsource ‘critical components’ to other businesses, thus losing integral core products that ultimately reflect core competencies they are lacking.
What are Core Competencies?
Capabilities that set a company apart
Combined learning in the organization
Coordination of skills and delivery of their value
Outspending competitors in research and development
Cost sharing of common elements
Vertical integration
Loss of Core Competencies
Cutting internal investments
Focusing on the price/performance of end products
Outsourcing is a shortcut to greater competitive products, but it prevents the firm from developing core competencies in critical tasks needed to sustain product leadership
Loss of Core Competencies

For example:
Chrysler is dependent on outsourced engines from Mitsubishi and Hyundai. Chrysler does not base its competitive advantage on the criteria of core competency but rather on cutting costs. Honda on the other hand, would not outsource the making of its engines because it considers engines to be a crucial part of the performance and reputation of their cars. They may outsource the production of non-core activities (e.g., brake drums) and focus on core competencies (engine).


1. Strategic Business Unit
- SBU vs. Core Competency
2. What are Core Competencies
3. Loss of Core Competencies
4. Identifying Core Competencies
5. A Corporation "Tree"
6. Competitive Advantage
7. Developing Strategic Architecture
8. Relevance to Pharmacy Profession

Core Competence (nourish, sustenance, stability)
Core Products
Business Units
End Products
Roots of Competitive Advantage
Core Competencies
Core Products
End Products
Core Products
End Products
The physical embodiments of core competencies
They are key parts that add to the value of the end product
Ex. Honda's engines

Product provided to the customer
Ex. Honda’s cars, lawn mowers, motorcycles
a road map of the future that identifies which core competencies to build and their constituent technologies
Responsible for accessing, retrieving, organizing and evaluating information to provide safe and effective care to the patient
Core Competencies
"Core competencies are built through a process of continuous improvements and enhancements"
The competency of the pharmacist must be continuously improved and updated as the profession of pharmacy evolves if they wish to remain relevant in the market

Pharmacists failing to invest in continuously building their core competence in pharmacy (eg. working in government and then wishing to re-enter community without keeping up with newer medications or learning about the expanded scope of practice) will find it very difficult to do so
eg. Motorola skipping the 256k generation of DRAM chips and then needing technical help from Japanese partners to rejoin the market in the 1MB generation
The Importance of Core Competencies in Corporation
1980 = $3.8 billion
1988 = $21.89 billion
1980 = $9.98 billion
1988 = $16.46 billion
GTE Sales
NEC Sales
What Did NEC Do?
Strategic leadership
Creating of the "C&C Committee"
Identification of three interrelated streams of technological and market evolution
Silva H, Stonier P, Buhler F, Deslpere JP, Criscuolo Domenico. Core competencies for pharmaceutical physicians and drug development scientists.
Front Pharmacol
. 2013; 4: 105.



R. Bhamraa, S. Danib and T. Bhamrac. Competence understanding and use in SMEs: a UK manufacturing perspective.
International Journal of Production Research.
Vol. 49, No. 10, 15 May 2011, 2729–2743


Dvir D, Shenhar A. Success Factors of High-Tech SBUs: Towards a Conceptual Model Based on the Israeli Electronics and Computers Industry.
J Prod Innoc Manag
. 1990;7:288-296.

Prahalad CK, Hamel G. The Core Competencies of the Corporation.
Harvard Business Review
. 68(3), 79-91.
NAPRA's Core Competencies
in Pharmacy
Patient Care
Pharmacists use their unique knowledge and skills to develop a trusting relationship with the patient to meet patient's drugs/health needs and achieve patient safety
Professional Collaboration and Team Work
Working together with other healthcare professionals as a team to improve health outcomes and patient safety
Drug, Therapeutic and Practice Information
Relating Article to Pharmacy
"Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies."
-Prahalad and Hamel
Integration of technological streams
Communication among many levels of people
Another example:
Motorola divested themselves of the DRAM business at 256Kb level and was unable to enter the 1Mb market without the technical assistance from Japanese partners.
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